World sugar production is expected to decrease slightly for the second year in a row, suggesting that low prices during the last couple of years may finally be generating a response. However, a lot depends on the world’s largest sugar producer, Brazil, as it waits to see how weather progresses in the coming months after a long dry period.

According to a recent Rabobank report, preliminary global production estimates for the 2014/15 global balance, suggest a projected deficit of 0.9 million tonnes raw value.

Rabobank analyst Andy Duff said: “Despite a return to a global deficit for the first time in four years, the projected deficit is currently very modest, and is not enough to materially reduce the level of year-end global stocks, nor does it look sufficient to significantly impact the global stocks/consumption ratio.”

He added that this deficit will provide limited support for prices as we move from the current international crop year to a new one.

The global sugar market has been trading sideways in the past three months, as prices have ranged from US 16.5c/lb to US 18.5c/lb. This is much lower than early 2011, when global prices hit all time highs of US 29.7c/lb.

According to the report, the sugar price in the EU has dropped 22% over the last 15 months as comfortable supply has affected domestic price. In most cases, EU sugar producers have seen profit margins decrease in the past 12 months.

Südzucker, Europe’s largest sugar producer, saw its quarter one sugar division revenues fall by 17% to €862m, while its operating profits were back 72% to €45m. This was the sixth consecutive quarter of falling profits for the segment. The German-based company blames sinking quota sugar revenues despite higher volumes while export prices for non-quota sugar were less than last year as world market prices retreated.

Meanwhile, Associated British Foods, the UK’s sole beet processor, has also been affected by the decline in sugar prices. It says that the impact has been exacerbated by an intensification of competition ahead of quota abolition in 2017.

Even though the surplus era is ending, sugar stocks are high. The three years of surpluses amounted to an excess of 22m tonnes of production over consumption. It is estimated that by the end of this year, world stocks could be as high as 80m tonnes, or more than 45% of annual global use of sugar. This will ensure little risk of any global shortage any time soon.